No CGL Coverage For Construction Defects

By: Geoff Bryce, Managing Partner

Federal Judge John Robert Blakey wrote an opinion dated November 25, 2015 in Westfield Insurance Co. v. National Decorating Service, et al, 67 F.Supp.3d 898 (N.D.Ill. 2015) holding that there are allegations in the complaint that property damage is outside the scope of the subcontractor’s work – even if the damage is to the building or project itself – there is potential Comprehensive General Liability coverage and the carrier must defend.

In this case, the Board of Managers of 200 N. Jefferson Tower sued the general contractor, James McHugh Construction and others for construction defects. McHugh in turn sued its subcontractor National Decorating Co. for damaging parts of the project outside the scope of National Decorating’s work.

Judge Blaskey noted there was no CGL coverage for the cost to repair or replace National Decorating’s faulty painting work. The issue was whether Westfield Insurance had a duty to defend National Decorating. The Judge held that because there were allegations that National Decorating damaged parts of the project beyond their scope of work there was potential “property” damage caused by an “occurrence” and a potential for coverage. As a result, Westfield owed National Decorating a defense.

IMPLICATIONS
The decision set the rule that there is no CGL coverage for general contractors because their scope of work is the entire project or building. Further, the decision seems to contradict a substantial body of law stating construction defects which affect the project itself are not covered. What will be interesting is what the Illinois Courts will do with this decision. Follow it? Reject it? Modify it? Time will tell.